Home prices to flatten out and luxury home prices to see mild drop

After the government introduced cooling measures on the housing market, the residential transaction volume has fallen notably and home price growth has stopped. Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International, says, “If home prices continue to increase, the government may introduce more cooling measures.”

Lo expects the residential transaction volume to sustain at a low level for a few months until Chinese New Year. After the first quarter of 2013, banks may be more active in offering mortgage loans which may stimulate increase in transaction volume. In view of reliance of the local economy on the real estate industry, Lo believes the government would not introduce measures to cause significant drop in home prices.

Though the introduction of Buyer’s Stamp Duty hesitates mainland Chinese buyers to purchase residential properties in Hong Kong, Renminbi still has room to appreciate and thus mainlanders are interested to take advantage of their strong currency to buy properties in Hong Kong. Besides, China banks’ reserve ratio is reduced, which will result in abundant capital in the market. Therefore, mainland home buyers are anticipated to enter Hong Kong’s market again next year. In addition, in anticipation of better-than-expected economic growth in mainland, Hong Kong’s luxury residential and retail property markets are projected to be benefited. Overall, Lo expects home prices to stay flat in 2013.

If the China economy stays positive, retail property will be another benefited market. Underpinned by the Individual Visit Scheme, Hong Kong’s retail property rents and prices have increased substantially. This year, shop rents and prices at the first-tier locations increased 11% and 28% respectively. Lo expects that following annual growth of 20% - 30% in shop rents and prices over the past two to three years, the increase in next year is predicted to become milder at about 10%.

Looking ahead, Colliers International anticipates strata-title and en-bloc commercial properties to capture the investment focus next year. Lo expects the government would not introduce any control measures on commercial properties and the strong performance of commercial property sales transaction to sustain next year.

In terms of office rents, Lo says that as investment banks have become conservative in their offices’ occupation cost, they avoid leasing offices of too expensive rents and do not mind to lease second-tier buildings or even split their operations into different office buildings, which keeps rental growth of the most premium office buildings in the CBD in check.

Since major landlords in the CBD are not yet under pressure to reduce rents substantially, office rents in the CBD is projected to stay flat next year. Meanwhile, Kowloon East and Tsim Sha Tsui districts, where significant rental growths are recorded this year, are expected to be in the spotlight of the office sector in 2013.